Friday, November 13, 2015

Student loans: A bubble waiting to burst

There is no doubt about it. We have a tremendous problem with student loans and the education cost bubble.

Congress has built a bubble that inflated with cost of education with the availability of student loans, in very much the same way that Congress built a bubble that inflated the cost of healthcare with the FICA tax exemption for employer-based benefits.

The education sector stands ready, and willing to gobble up extraordinary money supplies Congress creates with student loans, and likewise the healthcare community has, for decades, eagerly gobbled up the extraordinary money supply created with corrupt and deceptive tax code.

Both of these bubbles are tremendous problems brought to us under the guise of benevolence, compliments of a corrupt government. The tools that Congress uses to create and inflate bubbles with corrupt policy and tax code strategically benefit big business and big government alike, and in ways that make life extremely hard on Main Street.

Both of these bubbles are spiraling out of control.

Our nation is in quite a pickle, and the student loan bubble is solely one symptom of a very grave illness. We have a humongous problem comprised of many pieces that boil down to cancerous corruption that has an intense grip on America, starting at the very top leadership positions in government, and working their way down to pervade virtually every socioeconomic segment and every walk of life.

One of the President’s roles it to teach responsibility, to oneself and to others. Obama speaks always about our responsibility to one another, and never about one’s self-responsiblity. Consequently, we have a rapidly growing class of people who first look to government to solve all their problems. Conversely, when I was younger, I turned first to myself or my family when I needed or wanted something.

Obama advocates and underwrites dependence on government for all things. He has badly wounded the American spirit that made this country what it is. It is a tragedy in the making.

I realize that it is not fashionable to teach unadulterated history anymore despite the fact that there is much to be learned about the human condition, especially the tendency for people to repeat the mistakes that destroyed civilizations in the past.

Over the past 40-50 years the U.S. has devolved similar to the ancient Roman practice of bread and circuses doled out by political elites. Everyone of these loan programs, from offering unaffordable municipal pensions, allowing young people barely out of puberty to mortgage a significant portion of their futures through student loans, to allowing long ago inspired social programs like SS to metastasize into something they were never meant to be, all have morphed into vote buying expediency.

No thought has ever been seriously given to unintended consequences or to how such programs would naturally distort the behavior of an ever expanding population.

In that sense Obamacare is the ultimate in short-term giveaways, so ill-conceived to grasp short-term vote buying for the income redistributionist (Obama), that is imploding before it can even be implemented.

The myopia is not only restricted to the legislative class, but infects the financial elites as well. The Fed thinks it can print the U.S. out of insolvency without consequence.

Because other deflationary factors have temporarily suspended normal inflationary forces, there is a blinded euphoria that somehow this time the piper will not have to be paid for his services. We have come to believe in magic wands, which through a mere waving, will completely suspend the consequences of natural laws that have evolved over eons of time since the beginning of man’s history.

The financial consequences of these actions mean very little to ideologues dedicated to the proposition that education, a middle-class lifestyle and whatever healthcare is required from cradle to grave is a right of every individual, not something to be earned or even paid for with debt satisfied over years: these aren’t even claimed as “entitlements” anymore, a word that has become politically incorrect for its proper demonization. They’re natural rights.

Anything that bankrupts the current system and brings us to a state where practically all production needs to be expropriated to pay for it is just fine.

The problems surrounding the unaffordability of post-secondary education have to do with educator compensation that has gone through the roof, a veritable army of assistant staff that didn’t exist in my time, and the propensity of schools these days to invest in immense physical plant boondoggles that are hardly strategic in nature given the movement toward the Internet and the consequent diminished need for stadia to fill with rear ends in seats.

But if you build it, they will come. If you invent a student loan program and make it ludicrously easy to load up then default, it will become the preferred means of funding excessively expensive education.

Since the Department of Education was created and the federal government jumped in with both feet, the cost of education has skyrocketed at 5-times the rate of inflation for most things. Once again we see that when the federal government gets involved to make things “affordable” things become unaffordable rather fast, because they blindly dump the raw fuel of cash into the market.

In the past, many students managed to pay their way through school without incurring a lot of debt by working. Some received a little help from family for part of the time, but the bulk came from work.

I doubt that a student could do that anymore, the price has gone up far faster than everything else, so not students are obligated to take on ever increasing levels of debt and their parents (if they can afford it) are bled of decades of potential savings.

Who benefits?

Certainly not the students – they pay more and are in debt up to their eyeballs for a long long time.

The politicians?

Somewhat, because they can claim to be “helping” and thus buy votes by fooling people into thinking they are getting something of value that they don’t pay for (of course they pay).

The schools?

Yes, a flood of money just means they can raise their prices. It doesn’t mean the education is any better or even as good as it has been. This is because of the push to force everyone into the colleges and Universities, whether they really should or need to be there or not. A degree has suffered the inflationary loss in value comparable to the dollar.

And what do the students learn?

Many businesses rely on degrees as a first level screening process rather than administering their own tests as they used to do, but this has as much to do with avoiding lawsuits and accusations of some sort of bias as much as anything.

But, when the students do arrive they often need remedial education in how to do something anyway. certainly my own company has educational programs to train new hires with classes and extensive coursework.

This doesn’t mean that we should make the much-diminished degree a kind of filter for first tier screening.

Personally, I don’t see the value of one size fits all education and I am increasingly skeptical about the demonstrated value of a publicly funded universal educational system.

I think we need to rethink a lot of things, like why do local governments try to run and manage schools directly?

If public funding is the goal then allocate a set amount for spending and let the students and their parents find schools that will serve their needs. Use fact-based standard testing – results – as a measure of the efficacy of schools; whether they qualify to receive public money.

The same thing can apply to college educated folks, although IMO college should remain privately funded with scholarships offered by private organizations, based on merit. If a student wants an education enough to pay then maybe they will amount to something and finish, if not then maybe college is not for them.

The pricing of this education would be much more reasonable if the federal government was not throwing billions of dollars at them.

Schools should be competing for the best students, not for the most federal dollars. If a student is good he or she can find a way to get the education they deserve, but it’s not an entitlement.

When a college education becomes an entitlement, its value quickly drops.